Where will the sudden interest in rare earths lead?

It would have been hard for anyone to miss the media coverage of the Prime Minister’s recent meeting with the President of the United States and their announcements regarding rare earth mining in Australia.

The prospect of billions of dollars being poured into this sector has set the share market alight, particularly the mining sector and most particularly, any listed entity that has any sort of connection with rare earth mining.

While any investment within Australia and particularly within the mining industry can be seen a good thing for the local economy, there are few things that should be pointed out about the global situation regarding rare earths.

Australia does have considerable deposits of rare earths, but China has stolen the march in this area and dominates not just the known deposits of these minerals but is at least 10 years ahead of everyone else in terms of refining them.

More it has used its dominance of the international markets to reduce prices to a level where it has not been viable for companies in Australia to develop rare-earth deposits. Now the Chinese have used their market dominance to curtail supply.

Can Australia take advantage of the situation? Maybe but not quickly.

Australia does have significant deposits of various rare earths, but few have been developed into fully fledged working mines, and it takes years to turn a known deposit into an actual mine, extracting ore.

Then Australia has to develop the skills and expertise to refine these rare earths into usable ore and develop the technology to convert them through various chemical process to a useful substance that can be sold.

So even if the mines are commissioned, it will take years for Australia to build up the capacity to fully develop and market their rare earth deposits and all while China stands in the background offering to underprice any competitor.

As with anything else the President of the United States announces, it always seems to be a bit half-baked and only partly rooted in reality. More the President is renowned for changing his mind.

So, while it is a great thing that the US and Australian Governments are considering partnering to develop and support a rare earth industry, it is years if not decades away from fruition.

This of course will not stop the market getting caught up in hysteria. Most likely, there will be a new gold rush, and some fledgling mining companies will suddenly turn into multibillion behemoths. Then the bust will come.